George Wilkins checked the spreadsheet where he keeps track of his assets and liabilities. He discovered that (i) he owes $80,000 on his house, which he believes to be worth $150,000; (ii) his car is worth $20,000, against which there is $2,000 on the remaining bank loan; (iii) his stock portfolio has risen to $50,000; (iv) he has a $10,000 balance in his bank account, which is earning a 1.2 percent annual interest rate; and (v) the value of his other belongings is $45,000. He has just received his monthly paycheck for $6,000 and he is trying to decide about taking a vacation and whether or not to pay off his car loan. His monthly expenses are $3,000 which includes the interest expense on his auto loan. He has two possible vacation choices: the Bahamas for $2,000 or a local beach for $1,000. If he has any money left over at the end of the month, it will go into his bank account. If he doesn’t have enough money to cover all of his expenses for the month, he will sell enough of his stock to cover the excess expenses.

Question

George Wilkins checked the spreadsheet where he keeps track of his assets and liabilities. He discovered that (i) he owes $80,000 on his house, which he believes to be worth $150,000; (ii) his car is worth $20,000, against which there is $2,000 on the remaining bank loan; (iii) his stock portfolio has risen to $50,000; (iv) he has a $10,000 balance in his bank account, which is earning a 1.2 percent annual interest rate; and (v) the value of his other belongings is $45,000. He has just received his monthly paycheck for $6,000 and he is trying to decide about taking a vacation and whether or not to pay off his car loan. His monthly expenses are $3,000 which includes the interest expense on his auto loan. He has two possible vacation choices: the Bahamas for $2,000 or a local beach for $1,000. If he has any money left over at the end of the month, it will go into his bank account. If he doesn’t have enough money to cover all of his expenses for the month, he will sell enough of his stock to cover the excess expenses.

a. Use a spreadsheet to input each of George’s assets, (i) to (v), in the first column; the value of these assets in the second column; and the liabilities (if any) against those assets in the third column. In the fourth column compute the net asset value of each of the assets. Total the fourth column to determine George’s net worth at the beginning of the month.
b. Compute the additional net income that George will have from his paycheck plus the interest on his bank account minus the monthly expenses. Use this information to answer parts (c) through (f) below.
c. Repeat part (a) for the end of the month assuming George does not take a vacation and pays off his auto loan.
d. Repeat part (a) for the end of the month assuming George takes the Bahamas vacation and only pays $1,000 on the principal of the auto loan.
e. Repeat part (a) for the end of the month assuming that George takes the local beach vacation and pays off his auto loan.
f. Repeat part (a) for the end of the month assuming George takes the Bahamas vacation and pays off the auto loan.

Answer 1

. Use a spreadsheet to input each of George’s assets, (i) to (v), in the first column; the value of these assets in the second column; and the liabilities (if any) against those assets in the third column. In the fourth column compute the net asset value of each of the assets. Total the fourth column to determine George’s net worth at the beginning of the month.

b. Compute the additional net income that George will have from his paycheck plus the interest on his bank account minus the monthly expenses. Use this information to answer parts (c) through (f) below.
c. Repeat part (a) for the end of the month assuming George does not take a vacation and pays off his auto loan.
d. Repeat part (a) for the end of the month assuming George takes the Bahamas vacation and only pays $1,000 on the principal of the auto loan.
e. Repeat part (a) for the end of the month assuming that George takes the local beach vacation and pays off his auto loan.
f. Repeat part (a) for the end of the month assuming George takes the Bahamas vacation and pays off the auto loan.

Answer 2

a. To input George's assets and liabilities into a spreadsheet, set up a table with four columns: Asset, Value, Liabilities, and Net Asset Value. In the Asset column, list each of George's assets from (i) to (v). In the Value column, input the corresponding values for each asset. In the Liabilities column, input the amount of liabilities associated with each asset (if any). Finally, in the Net Asset Value column, subtract the liabilities from the value of each asset to calculate the net value of each asset. Total the Net Asset Value column to determine George's net worth at the beginning of the month.

b. To compute the additional net income, subtract George's monthly expenses (including the auto loan interest) from his paycheck plus the interest on his bank account. This will give you the additional net income for the month.

c. Repeat the steps in part (a) for the end of the month, assuming George does not take a vacation and pays off his auto loan. Update the values in the Value column to reflect any changes (e.g., change in stock portfolio value, bank account interest earned). Recalculate the Net Asset Value column and determine the new net worth at the end of the month.

d. Repeat the steps in part (a) for the end of the month, assuming George takes the Bahamas vacation and only pays $1,000 on the principal of the auto loan. Again, update the values in the Value column to reflect any changes. Recalculate the Net Asset Value column and determine the new net worth at the end of the month.

e. Repeat the steps in part (a) for the end of the month, assuming George takes the local beach vacation and pays off his auto loan. Update the values in the Value column, recalculate the Net Asset Value column, and determine the new net worth at the end of the month.

f. Repeat the steps in part (a) for the end of the month, assuming George takes the Bahamas vacation and pays off the auto loan. Similarly, update the values in the Value column, recalculate the Net Asset Value column, and determine the new net worth at the end of the month.